The Implications of Sovereign Wealth Fund Investment on Capital Markets: A Bottom-Up View

Berry, Jason; Brown, Douglas J.; Ferris, Donald L.; Lian, Huiwen

doi:10.1142/9781848164321_0005

Cited by 2 publications

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“…Third, SWF Strategic Goal is a dichotomous variable that equals one if the SWF is a strategic fund. We adopt the same logic used by Bernstein et al (2013, p. 224), where the authors define a SWF as “strategic if its stated investment goals are the management of the government's physical assets, the acquisition of strategic assets, or domestic development”, and as “nonstrategic if its stated goals are investment of oil/commodity revenues, currency reserve management, or pension funding.” In line with Murtinu and Scalera (2016), we used the information included in the SWF profiles provided by the report of J.P. Morgan (Fernandez & Eschweiler, 2008) and then classified each fund accordingly. The expected association between Strategic Goal and the likelihood that the foreign investment materializes is difficult to predict a priori (Bernstein et al, 2013).…”

Section: Methodsmentioning

confidence: 99%

Cross‐border acquisitions by sovereign wealth funds: A legitimacy‐based view

Murtinu,

Scalera,

Strange

2023

Global Strategy Journal

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Research SummaryDrawing on institutional economics and the legitimacy‐based view of political risk, we investigate the factors determining the realization of cross‐border investments by sovereign wealth funds (SWFs), whose investments often suffer from a lack of legitimacy in host countries. Using matching models on all the realized and potential investments, we find that investments are more likely to materialize when the SWF home country and the host country enjoy cordial political relations or are involved in a trade agreement. Contrary to the theoretical predictions, SWF politicization does not per se represent an impediment to the realization of investments. Rather, it has a negative effect on the likelihood of an investment's realization only in the presence of trade agreements.Managerial SummaryA recent trend in the global economy is the increasing cross‐border investment activity undertaken by sovereign wealth funds (SWFs), large investment vehicles where financial and political goals often co‐exist. On the grounds of possible financial or political destabilization, SWFs' cross‐border investments attract scrutiny and suspicion in host countries, hindering their realization. We analyze SWF‐ and country‐level factors that may determine the successful realization of SWFs' cross‐border acquisitions. We suggest that managers ex ante select target firms and host countries by considering their fund's governance and degree of independence from home‐country politics in interaction with bilateral (home‐host country) political and economic relations, so as to secure legitimacy for their investments and maximize the chances that cross‐border investment strategies may materialize.

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Section: Methodsmentioning

confidence: 99%

Cross‐border acquisitions by sovereign wealth funds: A legitimacy‐based view

Murtinu,

Scalera,

Strange

2023

Global Strategy Journal

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“…Their revenues come from foreign exchange, balance of payments surpluses and commodity receipts – mainly oil and gas. Total assets under SWF management in 2008 were estimated at $3.5 trillion (Fernandez and Eschweiler, 2008) although the figure has certainly fallen since, reflecting the drop in oil price and general economic decline.…”

Section: Introductionmentioning

confidence: 99%

Are sovereign wealth funds “white knights”?

Couturier

Sola²,

Stonham³

2009

Qualitative Research in Financial Markets

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PurposeIn the continuing credit squeeze, sovereign wealth funds (SWFs) are still active in international lending and are eagerly sought out by large, cash‐strapped companies in the West. The purpose of this paper is to examine their nature and strategies before and after the onslaught of the credit crunch and global economic downturn in order to advise corporates on how best to design their strategies and terms in approaching the SWFs for funds.Design/methodology/approachAn analysis is made of SWFs in their dealings with Western corporate borrowers and a case study made of Barclays Bank which, faced with three major options in 2008 to raise a large amount of cash, chose to attract funding from three Gulf SWFs.FindingsSWFs certainly qualify as lenders of last resort (“white knights”), providing ready loans, albeit on premium terms, at a current time of severely restricted credit supply from other sources. Alternative sources of funds – stockholders and government bail‐out – also suffer from disadvantages relating to the characteristics of their loans.Practical implicationsCorporate borrowers should currently view SWFs as attractive “white knight” sources of loans when other providers are constrained. The analysis in this paper, including the experience of a major borrower, Barclays Bank, suggests that SWFs are demanding tougher terms as a result of their strong bargaining positions and historical losses, and that companies should tailor SWF loan contracts to contain maximum incentives and safeguards to produce successful results.Originality/valueThis is the first paper to analyse the new role and strategies of SWFs in the credit crisis context, as well as the required response of cash‐strapped companies seeking loans from them.

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The Implications of Sovereign Wealth Fund Investment on Capital Markets: A Bottom-Up View

Cited by 2 publications

References 0 publications

Cross‐border acquisitions by sovereign wealth funds: A legitimacy‐based view

Cross‐border acquisitions by sovereign wealth funds: A legitimacy‐based view

Are sovereign wealth funds “white knights”?

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